More Tax Hikes Coming

by Tom Yamachika, President, Tax Foundation Hawaii

It isn’t very far into the new year, but already the tax hike proposals have begun.

As reported by Hawaii News Now, Gov. Josh Green is proposing some “revenue raisers” to have resources available to fight wildfires and other environmental disasters.

He is proposing to raise $100 million by either hoisting the Transient Accommodations Tax, or TAT, by one percentage point, or by imposing a “check-in fee” of 25 bucks each time someone checks into a transient accommodation, be it a hotel, inn, or short-term rental.

These proposals are significantly different from the “Visitor Green Fee” proposed by his administration in the 2023 legislative session.  Last year, the proposal was to create an entirely new fee that would need to be paid for a tourist to enter parks and other state natural resource areas.  We at the Tax Foundation of Hawaii complained that such a new fee probably wouldn’t be constitutional and would be beset with practical difficulties in enforcement.  Hopefully, that incarnation of the Visitor Green Fee has been shelved.

This year’s proposals, adding on to existing taxes, are probably constitutional.  As long as the TAT is applied to all transient accommodations, and there is no discrimination against tourists from the mainland or from foreign countries, the proposal will probably pass constitutional muster.

Whether passing the tax is a wise idea, however, is another question entirely.  One hospitality industry consultant interviewed by Hawaii News Now made the point that Hawaii’s TAT is already the highest in the nation.  (Before rushing out to look up rates from other states and countries, consider this:  Hawaii has a base TAT rate of 10.25%, which would become 11.25% under Gov. Green’s proposal.  The county in which the transient accommodation is located can and does tack on another three percentage points to fund county projects.  Then there is the General Excise Tax, which adds on another four points, and the county surcharge on the GET adding another 0.5 points statewide beginning this year.  That gives you a total of 15.75% to compare against the other states; you will find that their sales taxes don’t typically apply to rentals.)

The alternative $25 check-in fee may have a greater impact in percentage terms.  An extra 25 bucks of TAT equals an additional 1% when the tourist’s hotel accommodations bill hits $2,500.  For short-stay tourists or others who don’t rack up $2,500 or more, the $25 causes even more of a dent in the tourist’s budget than the 1% would.

In either case, as HNN’s hospitality consultant pointed out, the message being sent to the tourists isn’t good.  We’re essentially telling the tourists to go somewhere else, and if they do come here our government is going to milk them like dairy cows.  They are already getting mixed messages in the aftermath of the Maui wildfires, and the new burdens may sour them on Hawaii even more.

And then, let’s not forget that at least some government agencies here in Hawaii have been having a tough time spending the money that is thrown at them.  We’ve seen this phenomenon with the Department of Transportation, the Department of Hawaiian Home Lands, and most recently the Department of Education.  If we are going to cast the pearls of additional revenue before our state agencies, we had better make sure that they are up to the new tasks that lawmakers have in mind for them.